CEER consults on the regulatory challenges for a sustainable gas sector
In this public consultation on the regulatory challenges for a sustainable gas sector, CEER examines what energy regulation can do to foster the development of a sustainable gas sector. The goals are to identify:
(1) the regulatory challenges for an efficient transition of the gas sector towards a low-carbon energy demand scenario; and
(2) the possible regulatory approaches that could enable a smooth and cost-efficient transition to a sustainable gas sector.
Europe aims by 2030 to achieve the EU energy transition targets:
(1) At least 40% cuts in greenhouse gas emissions (from 1990 levels)
(2) At least a 32% share for renewable energy sources; and
(3) At least a 32.5% energy efficiency improvement.
The target of carbon neutrality by the year 2050 requires a transformation of the gas sector to be an integral part of the future energy system.
What is the future role of (natural and renewable) gas?
Against this background, natural gas (already key in Europe’s energy mix) may play an important role in supporting the energy transition because: (1) in power generation it provides much-needed flexibility to complement an increasing share of electricity produced from renewable sources; and (2) it is more environmentally-friendly than other fossil fuels. Gas can also provide solutions for storage and energy transport.
But to reach the ambitious 2050 emissions target, in the long-term, the type of gas has to change (i.e. a move to green gases or hydrogen) and/or widely deploy technologies such as Carbon Capture and Storage. The substitution of natural gas with renewable gases may be an important step towards achieving carbon-neutrality in a cost-effective way, especially for those end-use sectors where electrification is more difficult, such as heating, industry and heavy-duty and maritime transport. Clearly, the natural gas industry is undergoing a period of uncertainty regarding its future role in the energy mix, whereas renewable and low-carbon gases should play a significant and growing role in the energy transition.
Renewable gas is gas whose energy content comes from renewable energy sources. Renewable gases are biomethane (a methane-rich gas derived from organic matter and that is generally produced by upgrading biogas), biogas (which is derived from waste, e.g. agricultural waste, animal waste, bio waste, as well as certain crops), green hydrogen (produced from renewable sources such as renewable electricity or from biomass) and synthetic methane produced with renewable energy. The technologies used to produce renewable gasses are at different levels of development, and many of them are not economically viable yet. Some technologies, like those for biomethane, are mature while others like those for power-to-gas are still pilot projects (and power-to-gas should be fed by surpluses of decarbonised power generation).
In CEER’s 2018 Future Role of Gas (FROG) report, energy regulators looked at the role of gas in the context of decarbonisation and a growing share of renewable energy. Key issues for the development of the gas sector, both from a commodity and infrastructure perspective, were analysed. Our FROG report highlighted that the substitution of natural gas with green gases using the existing gas infrastructure could support cost-efficient decarbonisation. However, the transition towards a decarbonised gas sector requires close coordination between policy, regulation and industry to do it in an economically-efficient way, making the best use of existing assets and attracting necessary investments.
What’s in the CEER sustainable gas sector consultation paper?
This Regulatory Challenges for a Sustainable Gas Sector consultation paper, a follow-up to our FROG report, is on the regulatory aspects of sustainable gas sector focusing on 3 key areas:
(1) the regulatory challenges for renewable gases addressing issues such as
• Scope of network operator activities
• Regulation of hydrogen networks in the future
• Role of and proper tariffs for power-to-gas infrastructures
• EU system for trading renewable gas guarantees of origin.
Regarding the scope of network operator activities, we stress that the regulatory framework should be technology-neutral but could allow for flexibility to develop pilot and demonstration projects.
(2) infrastructure investments and regulation
• The strategic importance of the Ten-Year Network Development Plan (TYNDP)
• Ensuring a sound assessment of projects’ value
• Potential decommissioning of gas network infrastructures
• Adapting the gas market design
• Achievements and remaining challenges
• Regulation of access to infrastructures.
First, given the risk of stranded assets, we explore the need for a regulatory framework for infrastructure decommissioning. Second, given the crucial role of the TYNDPs and cost-benefit analysis (CBA) methodologies for the future development of the European gas infrastructure in a cost-efficient way, we address the role of European Network of Transmission System Operators for Electricity and Gas (ENTSOs) and the national regulators. Third, we seek to better understand if the current investment framework is appropriate to face the future gas challenges or if it needs to be upgraded.
(3) gas market design and infrastructures
We address what is an appropriate regulatory and market design response to issues such as renewable gases, the deployment of power-to-gas technologies for sector coupling, as well as adaptations to the current transmission tariff regime etc.
• The deadline for stakeholders’ input to this consultation is Friday 17 May 2019. Please click here.
• There is also opportunity for stakeholders to share their views and to engage in the discussion at our 30th April workshop.
• CEER will present at the Madrid Forum in June on two important regulatory issues in the paper, covering the unintended interactions between the regulated and contestable activities, and decommissioning of gas infrastructures.